Trading in stocks and other securities can seem confusing in and of itself for those who are new to the craft. Trading online, without any help from a broker, seems even more daunting to new entrants into the markets. Fortunately, it doesn’t have to be hard to learn how to trade online. All it takes is getting an understanding of a few basics.
First, Learn the Basics of Stock Trading
Trading in stocks isn’t simply making purchases and sales. That’s because the prices go up and down, and the profit is in correctly working these changes. Because the value is in the pricing fluctuations, it’s important to watch a prospective stock for a long enough time to get a feel for which way those prices are likely to move. It’s a good idea for new investors to practice by making pretend trades (often called “paper trading” or simulated trading) and following the stocks to see if those trades would have made money if they were real. When the success rate is good enough, it’s time to move to actual trading. Keep in mind that success with simulated trading does not guarantee success trading real money.
What Is Online Trading?
Online trading is simply the act of trading stocks and other securities online instead of in person and over the phone. As with many other types of e-commerce, people typically find it easier once they get used to it. Therefore, a large number of investors prefer to use online methods once they’re ready to trade with real money.
Learn about the Most Common Types of Trades
All of these trading types are available at both traditional brokerages and their online equivalents. Since they can be used to either increase profits or decrease losses, it’s a good idea to get a handle on how they work.
Market Orders
These are the most common types of trades. They’re also the most basic. When a market order is placed, the trade is carried out as soon as possible for whichever price is prevailing. Note that in securities trading, the word “order” is not a synonym for “buy.” Brokers can be ordered to sell just as easily.
Limit Orders
When an investor expects a stock price to move in the direction that is opposite of profitability, he or she can place a limit order. This instructs the broker to sell or buy stocks when they hit a specific value. If the broker can’t sell (or buy) all of the required shares at the specified price, it will trade as many as possible. Any that can’t be traded at the specified price won’t be sold or bought.
Stop Limit Orders
These are hybrid orders that have both a start and a stop price. They’re triggered after the stock price passes a specified amount, but trades don’t take place until a different amount is reached. For example, a $50 stock could be set to have a stop limit order activate upon reaching $45, but only convert into a limit order at $35. If the stock goes below $35, no more trades will automatically be made. This allows for a window of trading, but still maintains a floor to keep trades from happening at overly disadvantageous prices.
Trailing Stops
Normally, limit orders expire if the trade cannot be made. Trailing stops remove the expiration. This can be good if a stock price was expected to change, but didn’t do so quite as soon as was originally predicted.
Can All of These Trade Types Be Fulfilled Online?
Yes, but as with physical brokerages, there may be extra fees involved for all but the most basic version. As with most businesses, brokerages will also each have their own pricing schedules instead of a single industry standard. Therefore, it’s important to read the terms before giving the go-ahead.
Are There Other Customizations That Can Be Done?
Yes. Investors can place restrictions on trades that specify extra conditions that need to be in place for a trade to happen. For example, “all or none” tells the brokerage to only trade if all of the desired amount of shares can be moved at the same time. Time frame restrictions specify which day(s) trading can take place. Stock purchases can also be set up in lots of equal amounts.
The online brokerage will have an interface set up to allow investors to trade with no need to directly communicate with the staff. All it takes to set up a trade is to log in, select the stock to trade, check off any customized features required, and hit submit. Online brokerages also have plenty of site-specific tutorials to make everything as simple as possible.
Online trading has inherent risks due to loss of online services or delays from system performance, risk parameters, market conditions, and erroneous or unavailable market data.